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Understanding Support and Resistance in Trading

In financial markets, support and resistance are key concepts that help traders identify potential price levels where a security may reverse or stall.

Support refers to a price level where a downward-trending asset tends to pause or rebound, as buying interest increases at that point. It acts as a "floor," preventing prices from falling further. Traders often look at historical price data to identify where the asset found support in the past, using it as a guide for future trades.

Resistance, on the other hand, is a price level where an upward-trending asset struggles to rise further, as selling pressure tends to increase. It acts as a "ceiling," limiting the asset’s price from rising significantly without a strong catalyst.

Traders use support and resistance levels to make informed decisions, such as entering or exiting trades. For instance, they may buy near support and sell near resistance. These levels can also be dynamic, adjusting based on trends, moving averages, or key psychological price points.

Identifying support and resistance can be a powerful strategy to enhance trading outcomes by anticipating potential price reversals or breakouts. However, no strategy is foolproof, and these levels can be broken during volatile market conditions.

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